Wellpoint May Be Surprise Winner in Surprise SCOTUS Ruling

by Richard Band | June 28, 2012 1:39 pm

Surprise, but no surprise! Defying the political handicappers and pundits, a narrowly divided Supreme Court has upheld the key portion of President Obama’s healthcare law — the mandate for individuals to carry health insurance. The surprise: Chief Justice John Roberts, widely thought of as a staunch conservative, provided the decisive vote in the 5-4 mandate ruling.

What’s not so surprising, though, is that a majority of the court somehow found the mandate constitutional. The Supreme Court seldom challenges the government’s taxing power — and, from the start, defenders of the mandate argued it was in essence a tax.

Once the dust clears, I think we’ll discover that the court’s “surprise” decision was really not such a big surprise from an investment point of view. Ever since Obamacare passed (and even before), most stocks in the healthcare industry have traded at historically low valuations, reflecting concerns about whether the law would in fact be implemented, and how.

Today’s ruling hasn’t put all those questions to rest, but it does eliminate some of them. For example, it’s now pretty clear that managed-care providers like Wellpoint (NYSE:WLP[1]) will be receiving a large influx of new subscribers in the years ahead, even if many of these folks come in through state-sponsored insurance exchanges where profit margins are likely to be lower than on traditional managed-care business.

At only 8X this year’s estimated earnings (a 35% discount to the market), WLP looks extremely cheap to me. I rate it a buy. Over the next five years, counting both dividends and capital appreciation, I figure the stock will double your wealth from here.